Blog #14: Why You Need Two Banks

For the first 25 years of my life, I used the same brick and mortar bank for all my banking needs. I didn’t have a lot of financial needs, just a simple checking and savings account. Then at age 25, I discovered online banking. I found a bank that offered higher savings rates, free checking, and free ATM reimbursements, so I switched entirely to that bank. I no longer had an in-person bank, and quite honestly, that was a mistake. I should have kept a second bank. It took me a few years to correct that problem, but for the last decade I’ve made sure I always had bank accounts at two different banks. Sometimes I meet with prospective clients who are still using one bank for everything and it’s eye opening for them to hear why that could be an issue…

1. Diversification of Risk

Just like you wouldn’t put all your investment dollars in one stock, you shouldn’t necessarily keep all your cash at a single bank. For wealthier Americans, you could run into FDIC insurance limits. By splitting your accounts between banks, you avoid running into those limits. Then there’s the risk of things like system outages, glitches, and cyberattacks. While rare, these occurrences do happen. Keeping at least one month of expenses at two different banks lowers your risk of ever being without money in an emergency.

2. Access to Different Features & Benefits versus different Fee Schedules

Every bank offers different benefits and different fee schedules. Some offer free checking and/or free accounts for children, some offer better ATM access or reimbursement, while others offer in-person services, like counseling. Depending on where you live, what you do for a living, and how many people are in your household, you may find certain banks more useful than others. Of course all of these benefits and services should be compared against the fees the bank charges. Bank fees can be monthly if you don’t have a minimum amount at the bank and of course you want to be aware of any overdraft fees a bank may have. Some banks don't reimburse ATM fees and of course some banks interest rates are... subpar.

3. Separate Goals

Keeping money separated from other money can help a person or couple budget better. If you’re saving for a big purchase (like a car, house, or vacation) then you may want to keep that money separate from your daily checking account. By earmarking a specific account to a specific budgeting goal, you can keep your goal clearer. Some people prefer “out of sight, out of mind” when it comes to saving for a big purchase that’s going to take months or even years to accomplish. In that case it may be best to keep those savings separate and not at your main bank so you don’t see them too often.

4. Strengthen Relationships for Future Borrowing

Back in the day, you physically walked into your local bank to ask for a loan. Today, not so much. But that doesn’t mean we should ignore relationships and trust when it comes to possibly applying for a loan in the future. This is particularly true for individuals with less than perfect credit. By opening accounts and forming a relationship with a specific bank, you will strengthen a bank relationship which could someday help you with getting a loan you might not otherwise qualify for. This is especially true when working with a credit union or a Mom ‘n Pop bank. 

Final Thoughts: Keep it Simply but Strategic

You don’t need to overcomplicate your finances. Most people can benefit from a simple setup like this:

• Bank A (Primary): Checking account for income and bills

• Bank B (Secondary): High-yield savings account for emergency fund or long-term savings

This small step can improve your financial organization, security, and even help you reach your goals faster.

Need Help Structuring Your Accounts?

As a CFP®, I work with individuals and families to create personalized banking and budgeting strategies that align with their values and goals. If you’re unsure how to set up your accounts, or want help reviewing your current system, consider scheduling a free consultation.

Here’s to smarter, safer banking!

Tom Arasz, CFP®